The American patriots funded their Revolution largely by printing paper money, since they had no gold with which to buy supplies or pay troops. That got the immediate job done, but ended in disastrous inflation. Thus, when the U.S. Constitution was drafted a few years later, the states were explicitly forbidden to print paper money, and the federal government was deliberately not granted that authority.
Currently, printing of paper money is done by the Federal Reserve, which is essential a private bank on steroids, though under a certain amount of government oversight. What the U.S. Treasury (a part of the executive branch of the federal government) can do to cover its expenditures is to collect taxes, issue bonds and other debt, and also mint metal coins.
These coins are considered legal tender. The size and value of most of these coins is spelled out in31 U.S. Code § 5112 – Denominations, specifications, and design of coins . For instance, gold coins can be struck in certain denominations between $5 and $50. Sharp legal eyes have noticed, however, that the value of platinum coins is left unspecified. The definition of such coins is left up to the discretion of the Treasury Secretary. 31 U.S.C. 5112(k) reads:
The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
Thus, in theory at least, Treasury Secretary Janet Yellen could authorize the U.S. Mint to stamp 5 platinum coins, each bearing the words “One Trillion Dollars”. She could then (under heavy armed escort) walk these coins over to the Federal Reserve, and exchange them for nearly all of the $5.4 trillion in federal debt held by the Fed. These coins are by definition “legal tender”, which means that any creditor (bond-holder) must accept them to settle the debt represented by the bond.
Poof, the government would have another five trillion dollars to spend as it wished. No more bothering with issuing bonds to fund deficit spending, and no more pesky debt ceiling. This is a proposal which arises every few years, whenever the debt ceiling becomes an issue.
The Mint could even go ahead, pump out a total of 29 such coins, and retire the whole federal debt. No more interest to be paid on the national debt, no more hand-wringing over “can we afford it”. We can afford anything. Build it back better, tear it all down, and build it again even better. Jobs for all! And if people won’t work, send them money anyway. This puts us in a Modern Monetary Theory paradise.
Cooler heads have so far prevailed when the trillion-dollar coin ploy is proposed. Most parties agree it would be a violation of the spirit, if not the letter of the laws and customs of the land for the government to outright mint such quantities of fiat money. Arguably the purchase by the Fed of government debt effectively amounts to the same thing, since the Fed conjures money out of thin air with which to buy these bonds. (Furthermore, the Fed remits to Treasury the vast majority of the interest that Treasury pays on those bonds, so the Fed purchase of these bonds really is free money for the government). However, the interposition of the overall bond market in the process and having the Fed as a quasi-independent counterparty maintain at least the semblance of traditional government funding via public debt.
Also, as Cullen Roche has pointed out, the trillions of dollars of secure, interest-bearing government debt floating around the financial markets serve a number of very useful purposes to keep those markets lubricated and functioning. Such bonds also provide a seemingly safe place for citizens and pension funds to park their funds. To redeem all these bonds with platinum coins and thus to yank them off the markets and out of millions of brokerage accounts would be a major upset. Not to mention the raging inflation that would surely follow such naked, unconstrained money printing. But this all makes for entertaining financial theater.